Income Tax and Personal Savings

Income tax rates

From 6 April 2010 income in excess of £150,000 is subject to a new 50% additional rate of income tax (42.5% on dividends).

2010/11
Basic rate band - income up to £37,400
Starting rate for savings *10%
Basic rate 20%
Dividend ordinary rate 10%
Higher rate - income over £37,400
Higher rate 40%
Dividend upper rate 32.5%
Additional rate - income over £150,000
Additional rate 50%
Dividend additional rate 42.5%
*Starting rate is for savings income up to the starting rate limit of £2,440 within the basic rate band. The rate applies to any balance of the limit remaining after allocating taxable non-savings income.

 

The Chancellor announced that the basic rate band for 2011/12 will be reduced so that higher rate taxpayers do not benefit from the increase in the personal allowance. The exact figure will be announced later.

Personal allowances (ages are as at the end of the tax year)

Personal allowances 2010/11
Personal allowances (PA) under 65 £6,475
  65 to 74 £9,490
  75 and over £9,640
Married couple's allowance (MCA)
Either partner born before 6 April 1935 (relief restricted to 10%)
£6,965

 

Age-related allowances are reduced by £1 for every £2 that adjusted net income exceeds £22,900, to a minimum PA of £6,475.

The MCA is reduced by £1 for every £2 by which the income of the spouse or civil partner with the most income exceeds £22,900, subject to a minimum of £2,670 (highest income counts for the reduction).

Where income exceeds £100,000, the PA, including the minimum age-related allowances, is reduced by £1 for every £2 that net adjusted income exceeds £100,000.

For 2011/12, the PA for those aged under 65 will be increased to £7,475. The basic rate limit will be reduced so that higher rate tax payers do not benefit from the increase in the PA.

Individual Savings Accounts (ISAs)

Changes to the way the annual ISA limit is set were announced on 24 March 2010, but were not included in the original 2010 Finance Act. The Chancellor has confirmed those changes will be carried through.

Furnished Holiday Lettings (FHL)

The Chancellor announced that the proposed withdrawal of the FHL rules from 6 April 2010 will not take effect.

A consultation will take place over the summer of 2010 about plans to change the tax rules for FHL from April 2011. The consultation will specifically look at:

  • ensuring the FHL rules apply equally to properties in the European Economic Area (EEA)
  • increasing the number of days that qualifying properties have to be available for, and actually let as, commercial holiday letting; and
  • changing the way in which FHL loss relief is given.

Non-domiciliaries

As announced in the Coalition Agreement, the Government is to review the taxation of non-domiciled individuals.

Life insurance deficiency relief

The Government will not extend life insurance deficiency relief to the additional rates of tax. Instead, relief will reduce tax on income subject to the higher rate and dividend upper rate, only.

Managed Payment Plans

The Chancellor has announced a deferral, from the proposed date in 2011, of the implementation of Managed Payment Plans (MPPs).

MPPs will allow taxpayers to pay self-assessed income tax and corporation tax in a series of monthly payments either side of the theoretical due date.

Income tax adjustments between settlors and trustees

A measure announced on 24 March 2010, which would require settlors to pay to the trustees of trusts certain repayments of tax received on or after 6 April 2010 was not enacted in the original 2010 Finance Act. This will be legislated for in the next finance bill.

Pension savings

The Government proposes cancelling the introduction of the high income excess relief charge, which would apply from 6 April 2011, and replacing it, principally, with a reduced annual allowance as a means to restrict pensions tax relief.

The requirement to buy an annuity by age 75 is to end, with effect from 2011/12. In the interim, the age by which an annuity must be bought or an income secured is increased, with effect from 22 June 2010, to 77, so long as the individual had not reached the age of 75 before 22 June 2010. The same changes will also apply for inheritance tax (IHT) purposes to members who die on or after 22 June 2010.

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